The Banking Industry’s Best Savings Accounts

As the old adage goes, a penny saved is a penny earned. However, choosing the best way to save money can often be a confusing and overwhelming process. To help you in this process, most banks offer several different savings vehicles. It’s vital for you to understand each savings vehicle and review the pros and cons of each. The following information explains a few of the most common types of savings accounts available in today’s banking industry.

Typical Savings Account
As the most common savings account, a passbook or regular savings account requires you to typically go into the bank or sign up online. While savings accounts are similar to checking accounts, savings accounts do not allow check writing privileges and do pay interest. These accounts are simple to setup and easy to maintain. In most instances, the savings account will be linked to the checking account, which allows you to easily move money between the two. One of the key benefits of this type of account is it helps you to avoid overdraft charges in your checking account. However, the biggest disadvantage to this account is pays a significantly low interest rate.

Online Savings Account
While regular savings accounts allow you to go into the bank and make transactions, online savings accounts require you to deal with it exclusively online. Since the institution has fewer overhead costs, online savings accounts typically will pay a higher rate of interest. However, these accounts may take longer for you to access your funds. Most online savings accounts do not have minimum daily balance requirements, minimum opening deposit amounts, or monthly maintenance fees.

Money Market Deposit Accounts
If you have a larger amount and are looking to earn a higher rate of interest, Money Market Deposit Accounts (MMDA) may be the way to go. These financial savings instruments offer short maturities and high liquidity. Although money market investment accounts do have risk, MMDAs are essentially risk-free because they are backed by the FDIC. These accounts generally have monthly fees and require higher minimum balance requirements, which can range anywhere from $500 to $2500. While you may be able to withdraw money from the account with check-writing privileges, there are federally imposed limits on the number of withdrawals you can make each month.

Certificates of Deposits
Certificates of deposits (CD) are a savings vehicle that entitles you to receive interest when the instrument matures. Since CDs are bank products, your funds are insured by the FDIC. Most CDs with have either a fixed or variable interest rate, a set maturity date, and can be issued in almost any amount. CD terms can range from one month up to five years. In most instances, your interest rate will be based on the term of the instrument, and you will generally receive higher interest rates on longer terms. In general, CDs pay higher interest rates than other savings vehicles. In exchange for this higher rate, there are restrictions, such as penalties for withdrawing your money before the maturity date.

Automatic Savings Plan
As an excellent way to establish saving habits, most banks offer automatic savings plans. With these types of plans, you must choose a certain dollar amount you want to have withdrawn from your checking account. This amount will be withdraw one time a month and transferred to your savings account. Automatic savings accounts are designed to help you stick to your budget, while saving money on a regular basis. In the event you notice the amount is too high, you can always lower the amount. One of the top benefits of an automatic savings account is that you will not have to remember to save money because it will be automatically done for you.

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